Professional Documents
Culture Documents
Macroeconomics
Macroeconomics is the study of the economy as a
whole.
Its goal is to explain the economic changes that
affect many households, firms, and markets at once.
MARKETS
FOR
GOODS AND SERVICES
Firms sell
Goods
Households buy
and services
sold
Revenue
Wages, rent,
and profit
Goods and
services
bought
HOUSEHOLDS
Buy and consume
goods and services
Own and sell factors
of production
FIRMS
Produce and sell
goods and services
Hire and use factors
of production
Factors of
production
Spending
MARKETS
FOR
FACTORS OF PRODUCTION
Households sell
Firms buy
Labor, land,
and capital
Income
= Flow of inputs
and outputs
= Flow of dollars
. . . Of All Final . . .
It records only the value of final goods, not
intermediate goods (the value is counted only once).
. . . Within a Country . . .
It measures the value of production within the
geographic confines of a country.
Consumption (C)
Investment (I)
Government Purchases (G)
Net Exports (NX)
Y = C + I + G + NX
Investment (I):
The spending on capital equipment, inventories, and
structures, including new housing.
Copyright2004 South-Western
Consumption
69%
Copyright2004 South-Western
Copyright2004 South-Western
Copyright2004 South-Western
Nominal GDP
GDP deflator =
100
Real GDP
Real GDP20XX
Nominal GDP20XX
100
GDP deflator20XX
Copyright2004 South-Western
Billions of
1996 Dollars
$10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
1970
1975
1980
1985
1990
1995
2000
Copyright2004 South-Western
Summary
Because every transaction has a buyer and a
seller, the total expenditure in the economy
must equal the total income in the economy.
Gross Domestic Product (GDP) measures an
economys total expenditure on newly produced
goods and services and the total income earned
from the production of these goods and
services.
Summary
GDP is the market value of all final goods and
services produced within a country in a given
period of time.
GDP is divided among four components of
expenditure: consumption, investment,
government purchases, and net exports.
Summary
Nominal GDP uses current prices to value the
economys production. Real GDP uses constant
base-year prices to value the economys
production of goods and services.
The GDP deflatorcalculated from the ratio of
nominal to real GDPmeasures the level of
prices in the economy.
Summary
GDP is a good measure of economic well-being
because people prefer higher to lower incomes.
It is not a perfect measure of well-being
because some things, such as leisure time and a
clean environment, arent measured by GDP.